Support and Resistance
to Trade Options
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Daily Trading Log
Trading Options Using Support
are your trading vehicle of choice, then you’re in luck, because like almost
all markets they will tend to “obey” support and resistance areas - just as
the underlying stock or index does. In fact, some nice percentage gains (or
losses if you aren’t disciplined enough to get out when wrong) can be made
in a short amount of time, if the trade is timed right.
personally trade options this way in my own trading account. Option
strategies can be simple or very complex.
Options trading can be as speculative or as conservative as you want. This
means you can do everything from protecting a position in a stock or index
from a sell-off, to making an outright “bet” on a short term move of a
market or index.
example of an options trade using Support and Resistance for guides was a
trade made on April 7th
and 8th of 2010. When the ES was trading just 1 point below my
1186 resistance (after having reached and reversed from there about 10
minutes prior) on Wednesday April 7th. I bought the SPY April 119
Puts for .99, or $99 per contract. This was a directional play for a short
term sell-off. On Thursday morning the ES dropped to 1171.00, which was
just above my 1170.50-1170.00 support. The Put option made a high at 1.85. I
covered the Put options at 1.75 ($175 per contract) when the ES was near
1173 or so.
That was a
very nice percentage gain due to the leverage. This was a case where I got
short near a good Resistance area (via buying Put options), and covered near
a good Support area. Time to expiration on this option was just 7 ½ days, so
the expected move and exit needed to happen soon in this case. Trading
options that close to expiration are for day trades or very short term
plays. The lines on this Put option chart were equivalent to the support/
resistance for the e-mini SP futures (ES) listed above.
support and resistance for entries and exits, as well as for clues about
where the market is going. Markets change, rendering most back-tested
systems obsolete after awhile. But support and resistance trading never
becomes obsolete, because support and resistance levels are caused by human
nature. They are a natural occurrence in all liquid markets, they always
have been and they always will be.
you see the market or a stock you are trading struggle at a resistance area,
and your strategy / system tells you its time to sell, consider a Put option
strategy. If the market, or stock, is holding at support and your
system says it’s time to buy, then Call option strategies can be employed.
The example above is the most basic of option strategies. As stated, they
can be very complex also. However, directional trades for the short term
using support and resistance zones for entry/ exit can give very good
percentage gains when they go right.
stops in place, and good trading.
is author of TradeStalker's RBI Trader's Updates. Mike began trading the
Market in 1982. When he got his start as a trader, Mike was plotting prices
on paper tape as the internet had not yet been "born" as we know it today.
Years of experience have really given him a feel for the Market action. His
support and resistance numbers have been published on the internet since
1996. He has a wide readership that includes day traders, floor traders,
locals and hedge fund managers. His nightly trading plan, along with his
support and resistance zones, are specific and accurate. He offers an
unlimited free trial of his nightly TradeStalker RBI Trader's Updates.-
Copyright 2015 Mike Reed and TradeStalker.com